29. $862,500 30. $2,325 31. $3,625 Use the following information to answer quest
ID: 2494318 • Letter: 2
Question
29. $862,500
30. $2,325
31. $3,625
Use the following information to answer questions 29 through 31. Gyro-Scooter manufactures scooters used for convenient urban transportation. It has the capacity to produce 5,000 scooters per year. The company currently produces and sells 4,000 scooters per year Information about its current revenue and cost follows. Total Per Unit Units Sold Revenue Costs S24,000,000.6,000 Variable manufacturing cost Fixed manufacturing cost Variable selling and administrative costs...,200,000 Fixed selling and administrative costs 0,000,000 500 800,000. 200 Total Net operating income 19200,000....4.800 004800 200 Recently Gyro received a special order from the lowa City Police Department. Information about this order follows. Order quantity: 300 scooters Police department will pay only $5,200 per scooter Gyro will need to add storage space to the scooter's design. This will cause a one time fixed cost of 90,000, but will not affect the manufacturing cost of the scooters. Because Gyro will not need to pay sales commissions on this order, the normal variable selling and administrative costs will be reduced by $75 . . 29. Compute the amount by which Gyro's operating income will change if it accepts the special order. Use the word "increase" or “decrease" to indicate the direction of change.Explanation / Answer
29)
If it accept the special order
Relevant Variable cost per unit = Variable Manufacturing Cost + Variable selling and administrative cost
Relevant Variable cost per unit = 1800 + (300-75)
Relevant Variable cost per unit = 2025
Discretionary Fixed Cost = Additional Fixed cost for storage space
Discretionary Fixed Cost = 90000
Note : Other Fixed cost are sunk cost as after accepting this order company other fixed cost would not be affected
Operating Income Increase by = (Offer Price - Relevant Variable cost per unit)* No of Unit in special order - Discretionary Fixed Cost
Operating Income Increase by = (5200-2025)*300 - 90000
Operating Income Increase by = $ 862,500
30)
Lowest price for special order = Relevant Variable cost per unit + Discretionary Fixed Cost / No of Unit in special order
Lowest price for special order = 2025 + 90000/300
Lowest price for special order = $ 2325
31)
Yes it would change the lowest price to accept the special order
For 1st 200 Unit
Relevant Variable cost per unit = 2025
Discretionary Fixed Cost = 90000
Remaining 100 Uit
Relevant cost per unit = Sale Price - Sale commission
Relevant cost per unit = 6000 - 75
Relevant cost per unit = 5925
New Lowest price for special order = (Relevant Variable cost per unit *200+ Discretionary Fixed Cost + Relevant cost per unit for 100 unit * 100) / No of Unit in special order
New Lowest price for special order =(2025*200 + 90000 + 5925*100)/300
New Lowest price for special order = $ 3625
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